Turkish Central Bank

New rate cut by Turkish Central Bank to support economy

This is the 2nd interest cut in less than a month due to the coronavirus pandemic. The Turkish Central Bank points out that the fall in oil prices will positively affect inflation.

The Central Bank of the Turkish Republic (TCMB) applied its second interest rate cut in just one month and the eighth in a row in less than a year to stimulate the economy and try to mitigate the effects of the coronavirus pandemic.

After a meeting of its Monetary Policy Committee, the TCMB announced this Wednesday a cut of 100 basic points in its reference interest rate to one week, which goes from 9.75 to 8.75%. In a statement to explain the measure, the entity noted that the consequences of the COVID-19 pandemic are already being felt in commerce, tourism and domestic demand, making it “crucial” to maintain the flow of credit.

In this sense, the Central Bank also assured that it will continue to use all the instruments at its disposal to achieve the objectives of financial and prices stability; precisely, one of the reasons it alleged for this new rate cut is that the global drop in energy and oil prices – of which Turkey is a large importer – has considerably reduced inflation forecasts in the Eurasian country.

“Despite the recent depreciation of the Turkish lira due to global events, a continuous and accelerated fall in international product prices, especially in crude and metal prices, is favourably affecting the forecasts for inflation,” said the statement, adding that “the risks in the inflation forecast for the end of the year are tending downward.”

“While developments regarding the spread of the coronavirus are substantially weakening prospects for global economic growth, central banks in developed and emerging economies continue to take expansionary measures … The pandemic is being closely followed because of its increasing global impact on capital flows, financial conditions, international trade and product prices,”, it concluded.